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28th June 2016

Singapore Economy

Shaken investors run for cover as Brexit pummelling continues

Singapore investors huddled behind the stability of telcos and real estate investment trusts (Reits) on Monday, as Britain's decision to leave the European Union (EU) continued to wreak havoc in risk markets. The Straits Times Index (STI) hit a four-month low of 2,709.56 near the market's open on Monday, but managed to claw its way back up over the day. Close to 3 pm, the blue-chip benchmark caught a second wind and entered into positive territory, in what one trader described as short covering.

Singapore-based aircraft leasing firm BOC Aviation may have chosen to list in Hong Kong but if it decides it wants to securitise any part of its business into a trust, the Singapore bourse may benefit from this move. Real estate investment trusts (Reits) and business trusts are, after all, one of the strengths of the Singapore Exchange (SGX) and it intends to continue building on this - along with consumer and healthcare stocks and hopefully also tech and digital companies as that ecosystem grows, SGX's head of equities and fixed income Chew Sutat said on Monday.

Singapore's stock market has weathered the choppy conditions with relative resilience so far, with yields stable, volatility limited and a healthy supply of new listings, according to the Singapore Exchange (SGX) yesterday. Its head of equities and fixed income, Mr Chew Sutat, said companies are delisting all over the world and not just in Singapore. His remarks in his half-year briefing addressed the perception that the local stock market is stagnant and losing its shine as a first-rate capital market platform in Asia.

Relative calm returned to the Asian markets yesterday as investors recovered somewhat from the panic that hit them last Friday when Brexit shock hit. There was still a flight of capital to safe assets and the British pound continued to be dumped, but for now, the feared stock market crash is not unfolding. Singapore's benchmark Straits Times Index closed down just 5.54 points or 0.2 per cent at 2,729.85. After a weak start, it actually staged a slow recovery to as high as 2,748 before the gain was offset by some late profit-taking. About $1.06 billion worth of shares were traded.

Shares of Singapore property firms with British exposure weaken further

Singapore stocks gained some footing on Monday after Friday's shock from the United Kingdom voting to leave the European Union. But some counters - mostly those in real estate - that are exposed to the UK continued to fall as analysts recommended investors to go defensive. One of them - City Developments - was among the biggest losers on the Singapore Exchange (SGX) on Monday. Its share price fell 3.73 per cent, or 31 Singapore cents, to close at S$8.00. It had already seen its share price fall by 4.37 per cent on Friday.

For all the damage that it is doing to a fragile global economy, "Brexit" might have some unintended positive consequences. Among them, perhaps, a soft landing for Singapore's wobbly property market. With hindsight, the seemingly excessive S$3.4 billion that Qatar Investment Authority (QIA) paid BlackRock this month to buy an office tower amid a glut of commercial space could turn out to be a decent diversification, if not an altogether shrewd investment.

OCBC has put up for sale a 12-storey freehold office block at 110 Robinson Road, with an indicative price of S$45 million. The price translates to about S$3,162 per square foot based on the building's net lettable area (NLA) of 14,233 square feet. According to Cushman & Wakefield, which OCBC has appointed sole marketing agent for the sale of the property, the bank does not occupy any space in the building; instead it has leased out the space to tenants. Currently the occupancy rate is 76 per cent and the average passing rent on existing leases is about S$4.80 per square foot a month. Based on the property's current income, S$45 million price reflects a gross yield of 1.38 per cent.

For local residents and tourists in downtown Los Angeles looking to put their tolerance of dizzying heights to the test, the latest attraction at the US Bank Tower, dubbed Skyslide, might just hit the spot. Part of a US$50 million makeover at Los Angeles' tallest building, Skyslide is about 14 m long, encased in glass and steel and affixed to the exterior of the US Bank Tower. Along with a new open-air observation deck called the OUE Skyspace LA, it sits some 300 m above downtown Los Angeles.

A house owner who hired a contractor to rebuild his unit was held not liable when demolition works damaged a neighbour's house. The High Court rejected a move to make the owner liable in addition to the contractor, making clear that property owners cannot be expected to supervise what contractors do, as a matter of policy. "It would be intolerable if the law were to hold that all landowners who seek to construct homes on their property would have a duty to look continually over the shoulders of the independent contractors they hire to ensure that they take reasonable care in the performance of their tasks," said Judicial Comissioner See Kee Oon in judgment grounds released yesterday.

Former Transport Minister Lui Tuck Yew has been appointed an independent director at Chip Eng Seng Corporation. The construction and property firm told the Singapore Exchange that it would arrange for Mr Lui to receive relevant training to familiarise himself with the role and responsibilities of a director. Mr Lui, 54, shocked observers when he resigned last August before the general election was called. He told Chinese daily Lianhe Zaobao then that his decision was a personal choice and had nothing to do with family or health reasons.

Predictably, "Brexit" considerations dominated a volatile Monday, though at the back of the minds of traders was always the possibility that the main blue chips could enjoy a spot of window dressing as the end of the first half of 2016 approaches on Thursday. Also a factor is that the federal funds futures market is now pricing in a 10 per cent chance of a rate cut at next month's Federal Open Market Committee meeting - a sharp reversal from a few weeks ago when expectations were for a rate hike.

The heat is on in the Singapore crowdfunding space and this comes, unsurprisingly, on the back of clearer regulations introduced recently. Clearer rules aimed not only at control but also at giving the nascent segment a nudge are commendable but, given that the market is not only at its infant stage but also opaque, a nagging question is why the revised measures are not accompanied by requirements to lift the quality of disclosure. The Monetary Authority of Singapore (MAS) in June clarified rules that essentially made it necessary for securities-based crowdfunding (SCF) platforms to be licensed. MAS also lowered the financial requirements for SCF platform operators, whose basic function is match-making SMEs and crowdfunding investors, the latter each funding a fraction of an unsecured loan to small businesses, in return for an interest that at the moment is in excess of 10 per cent.

There are two lessons Singapore can draw from the Brexit vote. Those who voted to remain in the European Union tended to be the upwardly mobile urban families who benefited from the United Kingdom's inclusion in the EU, while those who voted to leave tended to be from working-class households who have not benefited much from the inclusion in the EU. Europe correspondent Jonathan Eyal says: "While the forces of global markets have created winners, they have also created many losers. The losers have votes, too, and are ready to use them." ("Why leave? A protest against parties and price of globalisation"; last Saturday). What can we learn from this? Singapore is one of the world's richest countries on a per capita basis. It has a lot of money flowing in, but how many Singaporeans actually benefit from this inflow of money?

Mechanical lifts have been around long enough - they have been used as hotel guest service lifts since the 19th century - for city dwellers to take these for granted. Here, however, when people first moved from kampungs into tall flats, there were fears about safety. Occasional breakdowns did occur but the growing reliability of modern lifts laid concerns to rest and contributed crucially to the acceptance of high-rise living. Ironically, long after kampungs have disappeared, nerves have been jangled again - by a disturbing series of accidents.